Morphological Change and Internal Growth Factors of Firms in the Korean Pharmaceutical Industry in Recent Decades

Abstract

The pharmaceutical industry is a regulatory-based high-tech industry that requires long-term R&D investments from product development to market entry. This study investigates how pharmaceutical firms in Korea have grown their production size, changed their morphological structure, and identified the internal factors for sustainable growth in recent decades. First, with time series production data of pharmaceutical firms collected based on the production records of finished drugs, we studied the morphological change of the firms to adapt to environmental change by using general morphological analysis. Second, the pharmaceutical firms were divided into above-average growth firms and non-above-average growth firms, high growth firms, and non-high growth firms, using the decision tree technique to analyze and visualize the determining factors of sustainable growth firms. The general morphological analysis result showed that during the past two decades, in response to undergoing policy and environmental changes, the types of products by pharmaceutical firms have significantly changed from over-the-counter to ethical drugs and have shifted from generic drugs to more R&D-intensive ones. Furthermore, the decision tree technique identified the internal factors of growth and non-growth firms for sustainable growth during the past three decades. The decision tree analysis showed the determining factors for above-average and high-growth firms, such as the firm’s size, age, R&D investment, the over-the-counter drug to ethical drug production ratio, and the choice between chemical and bio drugs. The research findings imply that pharmaceutical firms must combine their strategy-side internal factors with the organization-side internal factors to achieve above-average or high-growth firms over the long term. Some detailed business and policy implications and future research topics are also presented.